Despite Brexit: City real estate partners reap benefits of record year for investment in London

City partners say the continued rise in Asian investment and favourable exchange rates are among the key factors behind what looks set to be a record-breaking year for the London commercial real estate market.

According to research by Savills, investment in central London real estate is on track to exceed £20bn this year, with the property adviser claiming the total could rise further still to surpass the previous annual record of £21.6bn set in 2014.

Two of this year’s biggest London deals both involved Asian investors: the £1.15bn sale of the Leadenhall Building, known as ‘the Cheesegrater’, to Chinese property developer CC Land, and the £1.3bn acqusition of the ‘Walkie Talkie’ by Hong Kong’s LKK Health Products Group - the largest ever single-building transaction in the UK.

Berwin Leighton Paisner (BLP) was involved in both of those deals, advising CC Land on the Cheesegrater sale and acting for the Canary Wharf Group on the sale of its 50% stake in the Walkie Talkie.

Mayer Brown also scooped roles on both transactions, advising British Land on the Cheesegrater sale and LKK Health Products Group on its purchase of the Walkie Talkie.

BLP real estate head Chris de Pury said that while those two deals’ combined value of £2.5bn has had a major influence on the overall figures, there is still huge interest in investing in London.

He said: “There is a bit of distortion caused by some of the chunkier deals, but having been in Hong Kong, people were saying that yields in London were good, with sterling being where it is.

“Regardless of Brexit, London reflects good value. The investor community has a long-term outlook, and longer term they do not see London losing its status as a safe haven for investment.”

Money from Asian investors has accounted for almost 60% of City investment, according to Savills. Notable deals include the £410m sale of 20 Canada Square to a private Asian investor, Aldwych House’s £250m sale to a Hong-Kong based private investor, and the £260m acquisition of 33 Old Broad Street by Hong-Kong listed investor SEA Holdings.

Pinsent Masons London property head Claire Hughes concurs, saying: “For foreign overseas investment, the exchange rate is very positive. A lot of money is coming from the Far East – especially Malaysia, Singapore and Hong Kong. Despite the shenanigans around Brexit, London is still seen as one of the safest places to invest, with a tight regulatory and legal system.”

Commercial investment in the City’s Square Mile for the first three quarters of the year surpassed the full-year total for 2016, reaching £8.5bn by the end of September. For the full year, Savills expects that figure to rise beyond the annual record of £12.6bn set in 2014.

Around 100 real estate deals have been completed in the City of London in 2017, with an average value of £91.6m way above that of £52.4m in 2016.

Dentons real estate partner Richard Budge added: “We have seen a moving east of the source of funds. How far investors are influenced by currency rates is unclear, but the feedback we have been getting from conversations in places like Hong Kong and Singapore is that the rates of return that can be achieved make the UK very attractive.

“However, I have heard of investors showing some hesitancy towards financial services office space and expressing concern about the top end of the luxury residential market.”

Looking to the future, Herbert Smith Freehills real estate partner Richard Forsdyke said expects the strength of the London real estate market to endure, but that the Brexit vote is also prompting investors to look elsewhere in Europe.

“Looking two to four years ahead, we face the future with confidence, and we think the real estate market in London will stay strong and busy,” he said. “When we’ve had conversations with people with a European mandate to invest, they tended to be very heavily London-centric.

“However, people are becoming genuinely more interested in Germany, Poland and Ireland, which I think has been inspired by Brexit to a degree.”